This article proposes a bright-line test, at least with respect to the taxation of cash method taxpayers, for distinguishing between these two types of worlds. Transactions in worlds whose currencies are redeemable or convertible, it argues, should be subject to current taxation under standard cash method timing rules, applied in-world. Transactions in worlds whose currencies are neither redeemable nor convertible, by contrast, should not be currently taxable.

I’m not fully convinced by Seto’s reinterpretation of the realization requirement, but his functional analysis of virtual property and his distinction between cash-method and accrual-method taxpayers are sharp and well-argued. This is both one of the better virtual worlds papers and one of the better tax papers I have read recently. The whole thing sparkles with cleverness.